Targeted Absolute Return - what's in a name?

Fri 13 Apr 2018

By Sam Lees

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Sector analysis


There are a variety of funds that sit within the “Targeted Absolute Return” sector, many following very different strategies. The name suggests low risk, and even implies no risk – it certainly suggests you will make money. But all is not as it appears, and you should be wary if you hold, or are considering, funds in this sector.


The funds in this sector have received a lot of bad press because of poor recent performance and their apparent inability to provide positive returns in all market conditions.  In the latest TopFunds Guide (January 2018) the Targeted Absolute Return sector sat near the bottom of the sector table.

Investors should be aware that many funds in the sector only target positive returns over a set period (12 months, 5 years etc.), and make no guarantees.  You should expect periods of negative performance, although these shouldn’t be significant or sustained. 

In our view the funds in this sector should prioritise limiting falls in their price, and aim to provide a return, in most years, at a decent margin above building society interest rates.  Investors shouldn’t be expecting much higher stock market-style returns, as this indicates the fund can fall sharply as well as rise sharply.

What Goes Up...

We looked at the funds in the sector with performance data going back to January 2011 and greater than £50m in size.  This gives a shortlist of 28 funds from a sector of 79.

Of these, there were 3 funds whose best 12-month returns exceeded the FTSE 100 (table 1).  Normally, this would be great news – but not if you’re after a “lower risk” fund and not if the value can fall just as quickly.  These same 3 funds also had worst 12-month periods that exceeded the FTSE (table 2). 

These returns do make them outliers compared to the majority of funds in the Targeted Absolute Return sector.  The best and worst individual month returns for the 3 funds tell a similar story (table 2), again compared to the FTSE.

To be clear, this doesn’t mean these funds are bad.  It simply means they are in a wholly inappropriate sector, and some investors dazzled by recent performance might buy the funds without appreciating their true nature.

That’s More Like It...

Funds that are, in our view, more genuine absolute return funds are ones like Henderson UK Absolute Return Analysis Save to my funds Add to basketor Premier Multi-Asset Absolute ReturnAnalysis Save to my funds Add to basket.  Neither the best and worst 12-month returns nor the best and worst individual monthly returns exceed those of the FTSE 100 (table 3). 

Also, of interest is a recent launch by M&G: M&G Global Target Return.  This fund was launched in December 2016, so doesn’t have the track record to be included.  We kept a close eye on it for the first year, and it performed very well.  Then in February, when markets wobbled, it also held up much better than the great majority.

It’s an absolute return multi-asset fund that aims to deliver a positive return while limiting monthly losses.*  Like many multi-asset funds, the manager has the freedom to invest across global equity and bond markets, along with less liquid assets such as asset-backed securities or infrastructure. 

Proceed With Caution

The sector is a mixed bag, as we have often said.  There are some very small funds that may not have full management support.  Some funds have heavy stock market exposures, others more in bonds, and the balance invest in a range of assets or strategies.  Vigilance is required because, as we move through market cycles, the optimum funds will evolve – no one fund works well in all environments.


  • The Targeted Absolute Return sector contains a mixture of funds, some taking on much more risk than you would expect. 
  • It offers investors variety AND danger, as well as some very small (sub-£50m) funds. 
  • Investors need to be wary when considering the sector.



Table 1: Best and Worst 12-month period - January 2011-March 2018

  Worst 12-month period % Best 12-month period %
Argonaut FP Argonaut Absolute Return -25.6 41.9
LF Odey Absolute Return -20.6 47.7
City Financial Absolute Equity -19.3 40.4
Sector Average -5.6 14.4
FTSE 100 -8.7 28.4

Table 2: Best and Worst individual month - January 2011-March 2018

  Worst month's return Best month's return
City Financial Absolute Equity -12.7 11.5
LF Odey Absolute Return -10.9 8.9
Argonaut FP Argonaut Absolute Return -8.5 10.0
Sector Average -3.6 3.6
FTSE 100 -6.8 8.2

Table 3: Best & Worst periods (12-month & individual month periods) - January 2011-Mar 2018

Fund Worst 12-month period % Best 12-month period % Worst month's return % Best month's return %
Henderson - UK Absolute Return -3.3 18.8 -2.5 3.3
Premier - Multi-Asset Absolute Return 0.0 10.8 -1.9 1.8
Sector Average -5.6 14.4 -3.6 3.6
FTSE 100 -8.7 28.4 -6.8 8.2

Performance period: 01/01/2011 - 31/03/2018

* The fund aims to deliver 4% over 3-month LIBOR in any 3-year period before charges, and to limit monthly losses to a maximum of 3%.



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